Revenue growth despite lower automotive margins; reassessing cost absorption in FY2027-H1

Consolidated revenue in the first quarter of FY2027 (year ending March 2027) was ¥15,761 million, up ¥669 million, or 4.4%, from ¥15,092 million in the same period of the previous year. Operating profit, however, fell ¥117 million, or 30.5%, to ¥266 million from ¥383 million. The operating margin calculated against revenue declined by approximately 0.85 percentage points, from approximately 2.54% in the same period of the previous year to approximately 1.69% in the current period, showing that revenue growth has not translated directly into profit growth.

By segment, revenue from the automotive-related businesses and others rose 4.1% year on year to ¥14,384 million, but segment profit fell 22.7% to ¥475 million. Medical equipment was relatively resilient, with revenue up 8.5% to ¥1,376 million and segment profit up 6.7% to ¥45 million, but its scale is too limited to offset the deterioration in the automotive-related businesses and others, which account for most of consolidated revenue. Accordingly, the next results should clarify which factors, including selling prices, volumes, material costs, labor costs and logistics costs, pushed down margins in the automotive-related businesses and others.

The full-year forecasts are revenue of ¥63,000 million, operating profit of ¥1,500 million, ordinary profit of ¥1,500 million and profit attributable to owners of the parent of ¥700 million. First-quarter operating profit represented 17.7% of the full-year forecast. Revenue progress was approximately 25.0%, broadly in line with the elapsed portion of the year, but operating profit was lagging revenue. Simply deducting first-quarter results from the full-year forecasts leaves ¥47,239 million in revenue and ¥1,234 million in operating profit to be generated over the remainder of the year. Although seasonality must be taken into account, if an operating profit recovery cannot be confirmed at the interim stage, the likelihood of achieving the full-year forecast will remain uncertain.

At the previous results briefing, the factors behind changes in operating profit included a ¥250 million increase in variable costs, a ¥140 million increase in fixed costs, a ¥90 million decline at domestic subsidiaries, a ¥40 million decline in North America, a ¥630 million increase in Asia and a ¥100 million decline in the medical business. The first-quarter financial results report explained increases in raw-material and component prices, labor costs and logistics costs, but did not disclose the contribution by expense category or the results of price pass-through. At the interim results, it will be important to see whether the year-on-year change in operating profit can be explained separately at least by variable costs, fixed costs, foreign exchange and volume and selling-price effects.

The first-quarter financial results report did not include a statement of cash flows, so figures for operating and investing cash flow cannot be confirmed. In a period of declining margins, the interim results should also establish whether inventories or working capital have increased. We will prioritize tracking whether the operating margin improves from approximately 1.69% in the first quarter, whether segment profit from the automotive-related businesses and others exceeds ¥475 million in the same period of the previous year, and whether the full-year operating profit forecast of ¥1,500 million is maintained.